I was doing my taxes recently and noticed a surprising tax deduction that I had never seen before.
If you have a favorite hobby that you enjoy doing, you may be able to turn that into an unexpected tax deduction if you itemize your deductions.
This concept of a hobby can be a little tricky, so there are a few things to consider in regards to this tax deduction:
- The hobby must be an activity carried on primarily for pleasure or recreation, not for producing profit
- You can only write off hobby expenses up to the amount of your hobby income
- The hobby cannot be considered a business, but rather activity not for profit
- You cannot deduct hobby expenses if you take the standard deduction (versus itemized deductions)
- The money that you earn from your hobby should not be primary income that you live off of, but more incidental and/or occasional
- You should have your expenses and income tracked and verifiable by receipts and records
- If you have made a profit due to this hobby for at least 3 out of the last 5 tax years, it is considered a business and not a hobby
- You cannot deduct hobby-related profit losses—only expenses
The hobby tax deduction is an interesting one, but can be very problematic when it comes to discerning a hobby versus a business. In order to avoid potential issues with the IRS, including the potential for an audit, it is wise to consult a knowledgeable tax professional to determine whether you are eligible for the hobby tax deduction.
Do you have any hobbies that make money off of? Have you ever written off your hobby expenses on your tax return? Please comment below.
